COVID-19 Losses Take a Toll on Q4 Earnings—but It Could Have Been Worse
Though Q4 earnings in the lab industry took a beating as predicted, the earnings picture wasn’t nearly as bleak as many had feared.
As expected, lab company earnings took a beating in the fourth quarter of 2022 as COVID-19 product and service revenues continued to tumble in comparison to their Q1 2021 year-over-year (YOY) baselines. That trend is expected to continue in 2023, with Quest, Abbott, Labcorp, and other major lab companies projecting declines of 80 percent or more in global COVID-19 diagnostics sales. However, the earnings picture wasn’t anywhere as bleak as many had feared. There’s also grounds for optimism going forward. Here’s a briefing on the overall earnings picture for Q4 and beyond.
Post-COVID Realities Drag Down Lab Earnings
Of the 23 major lab companies that had reported their earnings for the period October 1 to December 31, 2022, at the time we went to press, all but 10 saw their YOY revenues decline. The following figures provide some perspective on the year-long earnings decline trajectory:
Overall YOY Revenue Growth, 2021 vs 2022
| Company | Q4 2022 | Q3 2022 | Q2 2022 | Q1 2022 |
| Abbott | -12% | -6% | +10% | +14% |
| Becton Dickinson | -2% | -2% | +0.7% | +2% |
| Danaher | +6% | +6% | +8% | +12% |
| Illumina | -10% | +1% | +2.7% | +12% |
| Labcorp | -10% | -11% | -3.7% | -6% |
| PerkinElmer | -28% | -17% | 0% | -4% |
| Qiagen | -14% | -7% | -9% | +11% |
| Quest | -15% | -10% | -4% | -4% |
Of course, the losses aren’t all due to COVID. The industry is also confronting other significant macro economic headwinds, including record inflation. While it was widely recognized that the enormous COVID profits of FY 2020 and 2021 would be unsustainable, the expectation was that patients would eventually resume the medical care they delayed during the pandemic, driving a strong rebound in core testing that would at least partially offset the COVID losses.
But, so far, the big rebound in core lab testing hasn’t happened. One explanation for this is that rising copays, deductibles, and other costs are keeping patients home. Thus, in a January 2023 Gallup poll, 38 percent of Americans said that they had put off their medical needs due to costs in 2022, up 12 percent from 2021.1
Times are especially challenging for US companies that sell diagnostic products abroad. Markets are weak all around the world, especially in the crucial China market where COVID lockdowns have been the order of the day. Meanwhile, foreign exchange rates and the strong US dollar are exerting an enormous drag on sales, earnings, and profits.
It Could Be Worse
Cushioning the blow is that the decline in revenues has been accompanied by a decline in expectations. We all knew the COVID bubble would burst—partly because the big testing companies like Abbott, Quest, and Labcorp have been sounding the warning for months. As a result, the Q3 and Q4 earnings losses have caught few investors by surprise. Even better is that, so far at least, the losses haven’t been as big as projected. Thus, 75 percent of the reporting companies actually met or exceeded their top line Wall Street targets for Q4, in many cases by comfortable margins. Most of these companies also met their full year FY 2022 revenues targets.
Notable Lab Companies that Hit Their 2022 Q4 Wall Street Revenues Targets
| Company | Actual Revenues | Target Revenues |
| Thermo Fisher Scientific* | $11.45 billion | $10.43 billion |
| Abbot* | $10.09 billion | $9.67 billion |
| Danaher* | $8.37 billion | $7.90 billion |
| Becton Dickinson | $4.59 billion | $4.52 billion |
| Quest Diagnostics | $2.33 billion | $2.26 billion |
| Illumina* | $1.08 billion | $1.07 billion |
| Hologic | $1.07 billion | $1.00 billion |
| QuidelOrtho* | $866.5 million | $779.6 million |
| Waters* | $858.5 million | $833.2 million |
| Bruker* | $708.4 million | $680.1 million |
| Exact Sciences* | $553.0 million | $528.2 million |
| Qiagen | $582.4 million | $486.9 million |
However, Labcorp was among the companies that came in short of their Q4 earnings targets, along with Bio-Rad Laboratories, Bio-Techne, PerkinElmer, and Twist Bioscience.
A Pathway for Growth in FY 2023
Several companies suggested that they’re prepared for the continued COVID losses in the coming year. Although the rebound hasn’t been as dramatic as expected, non-COVID revenues are slowly creeping above pre-pandemic levels. Companies like Quest and Labcorp will likely turn to acquisitions to boost their revenues. Others are in a position to parlay their investment in COVID testing into strategic opportunity.
Rapid, point-of-care testing appears to be an especially promising pathway to growth. One of the key players will be Abbott, which in delivering nearly 3 billion COVID-19 tests since the pandemic began, established a base in installed instruments, including the point-of-care ID NOW platform, which can be expanded to testing for other respiratory illnesses like influenza. In addition to an instrument base, many companies have also been able to use COVID testing during the pandemic to gain a toehold in new testing channels, such as physicians’ offices and at-home testing.
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Diagnostics Earning Reports for 2022 Q4 (period ended December 31, 2022) (Companies with at least $30 million in sales)
| Company | FY 2022 Q4 Total Revenue (vs Wall Street) | FY 2022 Q4 YOY Revenues | FY 2022 Q4 EPS (vs Wall Street) | Full 2022 Year Earnings (vs Wall Street) | DX Segment Performance Q4 |
|---|---|---|---|---|---|
| Abbott Laboratories | $10.09 billion ($9.67 billion) | -12% (-6% organic) | Adjusted +$1.03 (+$0.92 | $43.65 billion (+1% YOY) ($43.22 billion) | Declines in COVID tests cause 26% drop in total DX to $3.31 billion, with core down 6% to $1.26 billion, molecular down 48% to $180 million, point-of-care down 3% to $131 million, and rapid DX down 35% to $1.73 billion |
| *Becton Dickinson (FY 2023 Q1) | $4.59 billion ($4.52 billion) | -2% | Adjusted +$2.98 (+$2.68) | -- | Decline in COVID-only testing from $185 million to $31 million; fraction of 1% growth in base revenues to $4.55 billion; Life sciences down 12% to $1.30 billion |
| Bio-Rad Laboratories | $730.3 million ($742.3 million) | -<1% | Adjusted +$3.31 (+$3.45) | $2.80 billion (-4% YOY) ($2.82 billion) | Life sciences up 10% to $359.7 million and up 28% excluding COVID, driven by Droplet Digital PCR, qPCR, process chromatography, and western blotting; Clinical DX down 9% $369.6 million (-2% excluding COVID) |
| Bio-Techne (2023 Q2) | $271.6 million ($288.8 million) | +1% | Adjusted +$0.47 (+$0.62) | -- | DX & Genomics up 5% to $68.0 million; EcoDxProstate test up 70% and double YOY revenues; Protein Sciences down 1% to $203.9 million |
| Bruker | $708.4 million ($680.1 million) | +4% | Adjusted +$0.74 (+$0.72) | $2.53 billion (+5% YOY) ($2.50 billion) | CALID group (including life sciences and mass spectrometry) down 8% to $221.2 million; Bruker BioSpin up 3% to $175.7 million; Bruker Nano up 14% to $203.4 million; Bruker Energy & Supercon Technologies (BEST) up 2% to $58.9 million |
| Danaher | $8.37 billion ($7.90 billion) | +6% | Non-GAAP +$2.87 (+$2.54) | $31.47 billion (+7% YOY) ($30.97 billion) | Core up 8%; Diagnostics up 3% to $2.97 billion; Life Sciences up 8% to $1.95 billion; Biotech (including Cytiva and Pall) flat at $2.22 billion; Cepheid non-respiratory testing up 20%, driven by infectious diseases and sexual health; $1.1 billion in respiratory revenues, with continued high demand for POC COVID tests |
| Exact Sciences | $553.0 million ($528.2 million) | +17% | Net -$0.72 (-$0.84) | $2.08 billion (+18% YOY) ($2.06 billion) | Growth in screening more than offsets 87% decline in COVID testing (to just $6.0 million); Screening and lab service revenue from Cologuard tests up 45% to $403.5 million; Precision oncology down 4% percent to $143.4 million—but up 1% excluding divested Oncotype DX Genomic Prostate Score test and $1.8 million foreign exchange impact |
| *Hologic (FY 2023, Q1) | $1.07 billion ($1.00 billion) | -27% | Adjusted +$1.07 (+$0.91) | -- | COVID revenues fall from $523 million to $126.9 million; Excluding COVID, organic DX up 12% to $387.7 million; Breast health down 7% to $334.2 million but picks up at end of Q due to improving semiconductor chip supplies; Gynecological surgical up 15% to $154.1 million; Skeletal down 2% to $26.6 million |
| Illumina | $1.08 billion ($1.07 billion) | -10% | Non-GAAP +$0.14 (+$0.10) | $14.88 billion (-8% YOY) ($14.94 billion) | Core sequencing up 24% (after flat Q3) at $131 million, driven by instrument services and oncology and bowel disease partnership revenues; $20 million in COVID surveillance, including $19 million from consumables; Grail up 130% with $23 million contribution |
| Labcorp | $3.67 billion ($3.74 billion) | -10% | Adjusted +$4.14 (+$4.10) | $4.58 billion (+1% YOY) ($4.57 billion) | DX down for fourth quarter in a row, by 13% to $2.29 billion due to 79% decline in COVID testing (1.4 million molecular tests); Test volumes measured by requisitions down 12%; Covance drug development business falls 4% to $1.39 billion |
| Meridian Bioscience (FY 2023 Q1) | $56.9 million (not provided) | -36% | Net -$0.68 (not provided) | -- | 68% decline in Life Sciences ($17.6 million) wipes out 19% growth in DX ($34 million) |
| Olink | $57.9 million ($57.3 million) | +32% | Net +$0.05 (+$0.01) | $139.8 million (+47% YOY) ($139.0 million) | Doubling of Kits revenues to $30.6 million offsets 1% decline in Service revenue to $23.4 million; Other revenue down 17% to $3.9 million |
| OraSure Technologies | $123.1 million ($97.1 million) | +94% | Non-GAAP +$0.36 (-$0.01) | $387.5 million (+66% YOY) ($361.7 million) | COVID kit revenues shrink from $8.0 million to $137,000; Core diagnostics grows from $17.9 million to $18.4 million; IntelliSwab soars to $88.9 million from $14.9 million; Core molecular solutions down from $22.9 million to $15.7 million |
| Pacific Biosciences | $27.4 million ($26.2 million) | -24% | Adjusted -$0.35 (-$0.36) | $128.3 million (-2% YOY) ($126.8 million) | Product revenues down 27% to $22.8 million, including $6.1 million, less than half of $16.2 million in Q4 2021); 18 Sequel II or IIe systems placed, growing installed base to 512; Service and Other revenues down 6% to $4.6 million |
| PerkinElmer | $741.2 million ($1.04 billion) | -28% | Adjusted +$1.70 (+$1.62) | $3.31 billion (-14% YOY) (not provided but EPS of $7.95 tops Wall Street estimate of $7.89) | DX revenues down 45% to $394 million due to decline in COVID tests from $336 million to $31 million; Firm projects 9% growth in 2023, excluding COVID, including high single-digit growth in diagnostics |
| Qiagen | $582.4 million ($486.9 million) | -14% | Adjusted +$0.53 (+$0.47) | $2.14 billion (-5% YOY) (not provided) | 64% decline in COVID-only sales ($66 million) wipes out 8% increase in non-COVID sales to $432 million; Positive growth in core businesses, including sample prep technologies, DX solutions, PCR, and NGS testing |
| Quest Diagnostics | $2.33 billion ($2.26 billion) | -15% | Adjusted +$1.98 (+$1.91) | $9.88 billion (-8.4% YOY) ($9.78 billion) | COVID testing down 75% to $184 million for Q4 but still topped $1.4 billion for full year; Company expects COVID to decline 80% in 2023; Base revenues up 6% to $2.15 billion |
| QuidelOrtho | $866.5 million ($779.6 million) | +36% | Adjusted +$1.76 ($1.43) | $3.27 billion (+92% YOY) ($3.21 billion) | Base business excluding COVID up 42%; Labs down 11% but up 1% excluding COVID; POC down 35% to $374.7 million; Molecular DX down 71% to $14.6 million |
| Roche Diagnostics | CHF 3.88 billion | -13% | CHF 17.73 billion | CHF 20.30 (whole company, full year) | COVID down 58% in Q4; for full year: Molecular down 17% to CHF 3.45 billion; Core lab up 3% to CHF 7.78 billion |
| Siemens Healthineers (FY 2023, Q1) | €5.08 billion ($5.58 billion) | +<1% | Adjusted +€0.37 | -- | DX down from €1.45 billion to €1.15 billion due to fall in COVID antigen tests, revenue drops in China, higher procurement and logistics costs, and foreign exchange rates |
| 10x Genomics | $156.2 million ($148.7 million) | +9% | Net -$0.15 (-$0.31) | $516.4 million (+5% YOY) ($508.1 million) | Lower sales in China offset by 8% growth in consumables to $131.6 million; Instruments up 15% to $22.3 million; Services up 29% to $2.3 million |
| Thermo Fisher Scientific | $11.45 billion ($10.43 billion) | +7% | Adjusted +$5.40 (+$5.19) | $516.4 million (+5% YOY) ($508.1 million) | Life sciences down 27% to $3.05 billion (24% organically); Bioproduction and biosciences growth offset by drop in testing; Analytical instruments up 9% (14% organic) to $1.88 billion driven by electron microscopy, chromatography, and mass spec; Specialty DX down 23% (20% organic) to $1.12 billion |
| Twist Bioscience (FY 2023, Q1) | $56.5 million ($61.9 million) | -17% (vs +51% in Q4 2022) | Net -$0.91 (-$1.13) | -- | NGS up 24% to $24.4 million; Biopharma revenues grow from $4.8 million to $8.2 million despite lack of “pharma Christmas” seen in previous years |
| Waters | $858.5 million ($833.2 million) | +7% (same as in Q3) | Non-GAAP +$3.84 (+$3.73) | $2.97 billion (+7% YOY) ($2.95 billion) | Double digit growth in instrument sales; For full fiscal year 2022, instrument system sales grew 11% (16% in constant currency; Recurring revenues grew 3% (9% in constant currency) |
Bold face: Companies that met or exceeded average or consensus Q4 Wall Street revenue estimates
* Companies that raised their revenue or EPS guidance during Q4
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